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Another day of indecision in currency markets yesterday

Fri, Sep 4 2009, 06:56 GMT
by Saxo Bank Strategy Team

Saxo Bank  |  View company's profile

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Will today’s non-farm payrolls be the last chance for a breakout?

MAJOR HEADLINES – PREVIOUS SESSION

• US Weekly Initial Jobless Claims out at 570k vs. 564k expected and 574k prior

• US Weekly Continuing Claims out at 6234k vs. 6130k expected and 6142k prior

• US Aug. Non-manufacturing ISM out at 48.4 vs. 48.0 expected and 46.4 prior

• JP Q2 Capital Spending out at -21.7% vs. -23.0% expected and -25.3% prior

• JP Q2 Capital Spending ex-Software out at -22.2% vs. -27.5% expected and -25.4% prior

THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

• EU ECB’s Trichet to speak (0600)

• Swiss CPI (0715)

• CA Unemployment Rate (1100)

• US Non-farm Payrolls (1230)

• US Unemployment Rate (1230)

• US Avg. Hourly Earnings (1230)

• CA Ivey PMI (1400)

• EU ECB’s Nowotny to speak (1430)

Market Comments:

The doves were out in force overnight with both the Riksbank and the ECB surprising the markets with the tone of their respective accompanying statements. While it looked like momentum was building to challenge (dare we suggest break) the rock-solid walls of recent ranges but this was not to be. In the end, we endured another day of indecisiveness in currency markets and the ranges prevailed.

The US data releases were a mixed bag. Initial jobless claims were slightly worse than expected, at -570k versus -564k, but also the previous week’s numbers were revised higher. The non-manufacturing ISM data on the other hand was better than expected, improving to 48.4 from 46.4 but it was still not time to pop the champagne corks as we are still in contractionary territory below 50 for this sector, unlike the manufacturing side which soared to 52.9 in August.

With all eyes on the US unemployment and non-farm payroll data this evening, the Asian session was a quiet affair. We saw tight ranges in currency markets and equity markets were slumbering close to flat. In his speech in California, Dallas Fed President Fisher continued to paint a subdued outlook for the US economy, expecting a lengthy period of sluggish growth with unemployment remaining “uncomfortably high” for some time. Still, he expects a “good snap back” in growth over Q3 and Q4 but was worried over the trajectory of the economy beyond then. Moving onto rates he certainly was not hawkish, stating that it was too early to guess at the timing and pace of any Fed rate hikes. Indeed, he still believes deflation rather than inflation is the biggest risk to the US economy.

There was very muted reaction to news on the geopolitical front. North Korea declared through its official news agency that it is “weaponizing” plutonium and in the final stages of enriching uranium. The decision to push ahead with its nuclear programs a reaction to UN Security Council sanctions against the regime for testing a nuclear bomb last May. Note the announcement is also timed one day after a US special envoy arrived in Beijing for talks on how to bring North Korean back on track with its nuclear disarmament process.

Into the European session we will see Swiss CPI and speeches by ECB chief Trichet on policy and the Euro-zone economy. Canada’s unemployment numbers set the ball rolling in North America but US non-farm payrolls and unemployment will be the headline grabbers. For the record, the unemployment rate is expected to tick up to 9.5% while non-farm payrolls are seen falling by a median 230k. Note however that the range of estimates vary from -100k to -365k. Canada’s PMI data rounds off the week.

Over the next 2 days G-20 finance ministers and central bank governors will be meeting in London. Consensus seems to be building that it is currently still too early to start removing stimulus and a premature removal could threaten the global recovery. “Green shoots” are still just being seen as green shoots. While a discussion of potential exit strategies may be on the agenda, it is unlikely that these will feature heavily in the communiqué.
Currencies also have been lackluster of late and hence unlikely to grab the headlines.

Published on  Fri, Sep 4 2009, 06:59 GMT

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